October 23, 2018 | Posted in:

Tax Reform’s Impact on Non-Profits

Tax reform’s sweeping changes not only impact individuals and for-profit businesses in 2018, but also includes changes that non-profits need to be aware of.

Provisions within the Tax Cuts and Jobs Act (TCJA) will affect charitable giving and directly impact tax-exempt organizations. Here are some ways we will see these changes.

Effect on Charitable Donors

– Individuals

Individuals can claim an allowable charitable deduction if they elect to itemize their deductions for the tax year. Starting in 2018 through 2025, the percentage limitation on the charitable deduction contribution base is increased to 60 percent of an individual’s adjusted gross income for cash donations to public charities.

Though the increased limit for cash contributions is intended to encourage individuals to provide monetary support, the increased standard deduction amount will reduce the number of taxpayers who elect to itemize and thus reduce tax incentive to donate.

– Estates

The TCJA has doubled the estate tax exemption amount, which potentially could significantly reduce the incentive to make charitable bequests as a way to reduce estate taxes.

– Corporations

Corporations, on the other hand, may increase charitable giving as a result of a lower corporate tax rate.


Effect on Tax-Exempt Entities

– Unrelated business taxable income

Exempt organizations with more than one unrelated business will be required to calculate unrelated business taxable income separately for each unrelated trade or business, and will not be allowed to use business losses from one activity to offset gains of another.

Prior to the TCJA, an exempt organization could use a deduction from one unrelated trade or business to offset income from another thus reducing total business taxable income.

On the other hand, non-profits will pay a new rate of 21 percent on their unrelated business taxable income.

Unrelated business taxable income will be increased by the nondeductible amount of certain fringe benefit expenses paid or incurred by an exempt organization after December 31, 2017. These include qualified transportation fringe benefits, parking facility, on-premises athletic facility.

– Executive compensation

The TCJA establishes a 21 percent excise tax on the compensation paid to a covered employee in excess of $1 million and any excess parachute payments made to certain highly-compensated employees by a tax-exempt organization.

– Investment income of private colleges and universities

A new 1.4 percent excise tax applies to the net investment income of certain colleges and universities that have at least 500 students, are private educational institutions, and have assets with an aggregate fair market value of at least $500, 000 per student.


Alloy Silverstein is proud to have been a longtime partner and ally to many not-for-profits throughout the Greater Philadelphia Region. If you would like to discuss these details more in-depth, please contact us.


Author: Radmila Salmanova


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